Do you love your business so much that you never want to sell it? If so, congratulations—that’s a rare blessing. However, one day you will be forced to leave it whether you want to or not. That departure could be triggered by any of what we call the 5 Ds: death, disability, divorce, disagreement, or distress. Since these events are unpredictable and often beyond your control, it’s essential to have succession and exit plans in place, even if you don’t intend to sell your business anytime soon. It’s also important to regularly review and update them at least once a year to keep them current.
Preparing for these possibilities not only protects the future of your business but also helps to safeguard your family and employees. Be sure to review them with your accountant and attorney. Let’s briefly explore how each issue could negatively impact your business and what to do about them:
Death
Losing an owner or key team member can be highly disruptive to a business. Without a plan, the team may not know who’s in charge, families can be left scrambling, and the value of the company can suffer overnight. That’s why it’s important to think through succession while you’re still in a position of strength. Key person life insurance can provide immediate funds to keep operations stable and buy time for thoughtful decisions. Name a successor to create clarity for everyone involved. Keep your estate plan current to reduce unnecessary legal or tax complications.
Disability
If you were suddenly unable to work due to serious illness or injury, could your company keep running? Strive to make it as self-managing as possible to reduce this risk. Disability insurance can also provide critical breathing room if you’re out of commission for an extended period. Consider appointing someone you trust to make decisions on your behalf, through a financial or medical power of attorney. On the operational side, be sure vital processes are documented so others can step in with confidence instead of trying to reconstruct what you did from memory. Even better, build depth on your team by cross-training and sharing knowledge so no single person is the weak link.
Divorce
A divorce can complicate much more than your personal life. It can also have serious financial and operational consequences for a business, especially if both spouses are involved in the company. Legal agreements, such as a prenuptial or postnuptial, can spell out what happens to business interests if a marriage ends. Keeping personal and business finances separated helps, too. Have a capable leadership team in place so that if one spouse needs to step away, the company can continue without disruption.
Disagreement
Not every challenge comes from outside forces. Conflict inside the company can inflict considerable damage. Disagreements over strategy, money, or roles can quickly erode trust and paralyze decision-making. The healthiest businesses deal with tension before it escalates. That means creating a culture of open conversation, setting clear expectations about who does what, and keeping legal agreements current. Then if a partner wants out, there’s a fair and orderly process. In some cases, it’s wise to include a method for resolving disputes, such as mediation or arbitration, so arguments don’t drag the company into court. A little clarity now saves a lot of conflict later.
Within months of starting my partnership with Ron Leavitt and Jeff Burr almost 10 years ago, we had a major disagreement about how some of my compensation was to be determined. Tens of thousands of dollars were on the line. All of us thought we had been perfectly clear with each other from the beginning, but a misunderstanding was causing conflict.
Rather than placing blame or harboring resentment, we scheduled a meeting to hash it out. After we all shared our perspectives as openly and respectfully as possible, we were able to come to a compromise. It was an uncomfortable, emotional discussion, but it was one of the best investments we ever made in our relationship. It established the basis for a long, healthy, mutually beneficial partnership. Due to the way the situation was handled, our trust in and respect for each other grew. We became closer after resolving this conflict than we were before the conflict. We also clarified our written agreement to prevent future misunderstandings.
Distress
Economic downturns, sudden market shifts, or even the loss of a major client can put a company at risk of failure or force a sale. Owners who prepare for the worst and stress-test their business plans are more likely to withstand these pressures than those who simply hope for the best. Build contingency plans specifying how to cut costs, preserve cash, and prioritize what matters most if revenue suddenly drops or a major supplier fails. Business interruption insurance can provide an extra layer of protection against the impact of certain risks like fire or natural disasters. Keeping cash reserves healthy and debt under control enhances your flexibility to weather storms rather than being forced into decisions from a place of desperation.
One of the best ways to prepare for any business disruption is to diversify your assets. Too many owners rely entirely on their business to support their lifestyle. If it fails or they can’t sell it for the value they were expecting, they’re financially devastated. Invest as much as you can outside of your company so you and your family are not too dependent on it. That helps to ensure you’ll be able to maintain your lifestyle no matter what happens to it.
